The European Commission is recommending that Portugal and Croatia leave the excessive deficit procedure, in the framework of the ‘European Semester’ budgetary process. France and Spain, however, will remain in it.
This is the substance of the socio-economic recommendations for the 27 member states (all except Greece, which is under an assistance programme), presented on Monday 22 May by the Commissioners for Economic and Financial Affairs, Pierre Moscovici, the Euro and Social Dialogue, Valdis Dombrovskis, and Employment and Social Affairs, Marianne Thyssen. The three Commissioners started by underlining the encouraging economic results, as presented on 11 May along with the spring economic forecasts.
The Commissioners stressed their hopes of seeing the member states continue with the efforts already underway. Dombrovskis said that the priority must go to reforms to make growth more inclusive and breathe new life into productivity. Structural reforms, investments and the constant importance of responsible budgetary policy are vital to bolster and support economic recovery in the EU, he added.
Among the good news announced by Moscovici is the recommendation for Portugal and Croatia to come out of their excessive deficit procedure is, as they all have budgetary deficits below 3%. Cancelling the excessive deficit procedure for Portugal is recognition of the efforts made, Moscovici said.
Should the Council of the EU decide to come into line with the Commission’s suggestion, there would then be just four member states (Spain, France, Greece and the UK) under the excessive deficit procedure.
The Commission incidentally fired a warning shot across Romania’s bows, as it veered a long way from the adjustment trajectory towards the medium-term budgetary objective in 2016. It therefore calls on the Commission to adopt a recommendation for the adoption of appropriate measures this year to correct the trajectory and prevent the need to open excessive deficit proceedings. This is the first time that the institution has used this procedure.
Towards an end of the excessive deficit procedure for Greece
As regards Greece, Commissioners Moscovici and Dombrovskis said that all elements were in place to look at taking Greece out of the excessive deficit procedure. The Greek government has complied with its budgetary commitments in recent months (primary budgetary surplus of +4.2% of GDP in 2016) and the budgetary balance seems likely to continue in the coming years, according to the figures presented by the Commission on 11 May (see EUROPE 11786).
However, Moscovici said that the Commission did not wish to uncouple this procedure from the conclusion of the second monitoring mission of the third Greek bailout plan, which was discussed at the Eurogroup meeting on the same day. The Eurozone finance ministers were to decide on a potential agreement to conclude this monitoring mission, which may usher in the end of the excessive deficit procedure in the near future.
Italy must continue its budgetary efforts
Italy, which comes under the preventative plank of the Stability Pact (deficit below 3% of GDP), has adopted the additional budgetary measures asked of it for 2017, in order to ensure compliance with the debt criterion. This is the country’s main concern, as debt stood at 132.6% of GDP last year.
The Commission therefore recommends continuing its budgetary efforts in 2018, with a view to reaching its medium-term budgetary targets - a balanced structural budget, by means of an annual structural adjustment of 0.6% of GDP. Under the status quo, the institution fears a significant deviation from the objectives set down for next year.
To do so, the Italian authorities must put into practice the commitments made to the Council of the EU. However, the Commission does not currently feel that any other reforms to this end will be necessary.
Procedure still applicable to France
The Commission did not make a recommendation to the Council to end the excessive deficit procedure for France. According to the institution’s economic forecasts presented on 11 May, the deficit will stand at 3.0% of GDP in 2017, which would be above the recommendations of the French Council of State put forward in March 2015 (2.8% of GDP).
Moreover, the College believes that if the status quo continues, the deficit would be 3.2% of GDP in 2018, which could make a sustainable correction of the excessive deficit impossible. The institution therefore urges the French government to pursue a budgetary policy in line with the requirements of the preventative pact of the Stability and Growth Pact, by means of substantial budgetary efforts in 2018.
The Commission also encourages France to reduce the cost of work and to improve access to the employment market for jobseekers and, more specifically, for less qualified workers and immigrants. (Original version in French by Lucas Tripoteau)